IT Enabled Innovation
What is IT Enabled Innovation?
Almost everywhere technology is evolving from a functional silo to a foundation for breakthrough innovation in products, services, and business models. Advances in technology platforms ranked as the most important factor driving innovation. IT-enabled innovation comes in many flavors. It can mean using Advanced Analytics to improve decision-making, employing digital technologies to retool manufacturing, and harnessing mobile capabilities to improve marketing, to name just a few. The crux in all cases is the creation of a platform that can be leveraged repeatedly to deliver impact. In our experience, technology platforms can bring benefits in at least four areas: cost and timeline reduction, often though automation; business transformation; the enhancement of process; and, most significant, Business Model Innovation (BMI) through the creation of new types of products and services.
IT-enabled innovation is a process and the result of a process extending from the technology breakthrough, which is typically a result of basic or proprietary research, application development, testing, deployment, and finally customer use and acceptance. To qualify as truly innovative, new IT applications must successfully achieve that final step: customer value cocreation, adoption, and acceptance. Without customer acceptance, this new technology isn't an innovation; it's just a failed product or service that didn't gain traction. We're now well into an era in which significant Competitive Advantage is achievable from IT-enabled business innovation. The wide adoption of big data, Analytics, cloud computing, social media, mobile, and emerging IT-related innovations such as smart systems, cognitive assistants, and the Internet of Things (IoT) has dynamically changed the competitive landscape. Businesses that intelligently and innovatively apply Information Technology (IT) to create superior business and customer value are pulling away from those that do not. Indeed, it's becoming increasingly clear that IT-enabled innovation is the core capability that differentiates the winners from the losers. Growing knowledge of ICT design, execution, storage, transmission, and reuse along with the Internet's evolution is creating opportunities to configure IT into service relationships that create new value. IT-enabled innovations — digital innovations — have great potential to reduce costs, increase efficiency, and improve outcomes.
How IT Resources Impact the Innovation Process
A model of innovation, proposed by Roper, Du, and Love in 2008, describes the typical activities a firm has to perform in order to generate innovations. A schematic of these activities is provided in the Figure below
Knowledge Sourcing refers to activities the firm engages in to bring various sources of knowledge into the firm. Typically this is comprised of internal R&D, but increasingly firms are gaining knowledge from a number of external sources (e.g. their customers, competitors and suppliers). Once knowledge has been brought into the firm it gets converted into a useful invention during the Transformation phase. Significant value is added during this phase as various knowledge sources are recombined and developed to address strategic objectives. In the Exploitation phase, the best inventions are commercialized and generate profits for the firm.
Increasingly, the activities that occur along the innovation value chain are becoming globally dispersed. First, firms have moved to disaggregate their innovation activities by increasingly outsourcing work across international borders. Similarly, teams within organizations have become increasingly geographically distributed and understanding how to utilize technology and management practices to maximize the performance of globally distributed teams is vital to researchers and managers alike.
Firms are increasingly becoming dependent on information technology for all areas of business operations including R&D, logistics, customer service, supply chain management, etc., and business processes are tightly coupled with technology architecture in innovative firms (Prahalad and Krishnan, 2008). The increasing level of digitization in every aspect of a firm’s business model suggests that the capacity of a firm to reconfigure resources and leverage R&D investments may depend on the level of its IT investments and the quality of its technology architecture.
So how does the IT resource impact innovation processes? Sajeev P. Cherian at the AMCIS 2009 Doctoral Consortium presented in his dissertation that overall IT capabilities should help firms perform a number of functions that are germane to innovation processes. These include providing firms with flexibility and agility in their business processes, enhanced collaboration and coordination capabilities, robust experimentation capacity, and heightened knowledge-gathering and management capabilities. The level of IT investment has been used as a measure of overall firm IT capabilities (Hitt and Brynjolfsson, 1996), and, as such, greater IT capabilities will be associated with greater innovative output leading to the following hypothesis:
- Firms with higher levels of information technology investments will have higher levels of innovative output: IT investments provide firms with enhanced coordination and collaboration capabilities. Innovation processes typically rely on input from many, often distributed, players each performing tasks relevant to the process. Coordinating activities amongst these participants in the innovation process is vital to successful innovation. Ensuring that tasks are properly handed off and resources are well managed should help workers assimilate knowledge into new products and services. IT investments have been shown to enhance coordination and communication among employees and with partners (Hitt, 1999; Malone, Yates and Benjamin, 1987). Furthermore, IT investments have been shown to enable collaboration between distributed workers by facilitating better communication (Finholt and Olson, 1997) and aiding in the development of trust (Bos, Olson, Gergle, Olson, and Wright, 2002). Because IT enables the development of robust coordination and collaboration capabilities, and because these capabilities are essential to innovation processes
- Greater usage of IT systems that facilitate the coordination of work activities will be associated with higher levels of innovative output.
- Greater usage of IT systems that facilitate collaboration between employees and partners will be associated with higher levels of innovative output.
- Greater usage of IT systems that facilitate knowledge management will be associated with higher levels of innovative output.
Technology-Enabled Innovation Best Practices
Companies that want to pursue more technology-enabled innovation can start by taking the following steps, distilled from the best practices of global leaders:
- Deliberately allocate budget and resources to technology innovation: Approaching the challenge as an extra or add-on responsibility will not work. Establishing a cross-functional, dedicated R&D lab is often a good way to start.
- Put in place appropriate incentives for individuals to pursue innovation: Organize innovation contests, provide rewards and recognition, and (where appropriate) include innovation in job objectives.
- Foster a test and learn, fail fast and fail cheap mentality: Encourage risk-taking by actively reporting on both successes and failures. *Communicate explicit approval of management’s willingness to try and fail: Encourage a collaborative approach between IT and business units. At companies that are strong innovators, IT is no longer in its own silo. Instead, technical talent is integrated into business units and innovation teams.
Technology-driven innovation is hard. But the payoff is big—often extending well beyond a single new product to a platform or capability that can enable other innovations for years to come.